22 Jul 2013
Aluminium scandal by Goldman Sachs to create headwinds for the Aussie?
FXstreet.com (Barcelona) - A story posted by the NY Times over the weekend has raised eyebrows by the investment community, after Goldman Sachs got itself involved in a scandal again, this time relating to aluminium and the daily ritual being used to alter pricing regulations with the ultimate goal of earning a succulent extra bunch of millions of dollars each year.
Story by the NY Times
"The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again."
"This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back–and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal."
Actions to be taken and implications
According to Adam Button, Editor at Forexlive, this story is likely to stay on the front page this week "because Congress is holding hearings this week on allowing financial firms to own warehouses, pipelines and other commodity-related assets." Button adds that "late on Friday — perhaps because they got wind of this story — the Fed made a one line announcement saying it’s “reviewing” the 2003 decision that allowed banks to operate in commodity markets."
Could this be a game-changer in the commodities market? Button believes so. "This story is limited to aluminum but financials are now deeply involved in all aspects of the commodity market", adding that "nobody knows how deep the rabbit hole goes and if regulators get serious, traders will dump commodities and ask questions later."
Button concludes by saying that "If commodity prices fall and shares of BHP drop (after artificial prices), this could be a bad week for the Australian dollar. These revelations and the swift reaction point to a rough time ahead for commodities and it could spill beyond that to financials and risk trades. Steer clear of AUD and favor USD and JPY."
Story by the NY Times
"The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again."
"This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back–and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal."
Actions to be taken and implications
According to Adam Button, Editor at Forexlive, this story is likely to stay on the front page this week "because Congress is holding hearings this week on allowing financial firms to own warehouses, pipelines and other commodity-related assets." Button adds that "late on Friday — perhaps because they got wind of this story — the Fed made a one line announcement saying it’s “reviewing” the 2003 decision that allowed banks to operate in commodity markets."
Could this be a game-changer in the commodities market? Button believes so. "This story is limited to aluminum but financials are now deeply involved in all aspects of the commodity market", adding that "nobody knows how deep the rabbit hole goes and if regulators get serious, traders will dump commodities and ask questions later."
Button concludes by saying that "If commodity prices fall and shares of BHP drop (after artificial prices), this could be a bad week for the Australian dollar. These revelations and the swift reaction point to a rough time ahead for commodities and it could spill beyond that to financials and risk trades. Steer clear of AUD and favor USD and JPY."